What Is a Health Insurance Premium?

Understanding how premiums work can help you decide on the best plan for you.

Written by Kat Tretina / April 27, 2022

Quick Bites

  • Your health insurance premium is the monthly cost of maintaining a policy.
  • Factors such as the amount of your deductible, your plan’s network and your age affect the cost of your premium.
  • If you have a marketplace plan, you may be eligible for tax subsidies that reduce or even eliminate your premiums, depending on your income.

If you’re reviewing your benefits package at work, you may think that the health insurance information is in a whole different language. Same goes if you’re shopping for a policy on the health insurance marketplace. Consider the terms thrown at you: provider networks, deductibles, coinsurance, premium. That last one is a crucial word to pay attention to because your premium is a cost you bear every month.

What is a health insurance premium? Simply put, it’s how much you pay the insurance company every month to keep your policy in effect. In 2022, the average marketplace benchmark health insurance premium is $438 a month.[1] Many different variables affect the size of your premium, so it pays to know how premiums are set when you pick a health plan.

Inside this article

  1. Health insurance premium defined
  2. Other insurance costs
  3. Who pays?
  4. Choosing a policy

What is a health insurance premium?

Your health insurance premium is what you pay every month for coverage. Even if you don’t use any health care services during the month, you still have to pay the premium.

A lot goes into determining that premium, including these five factors:

Plan type

The type of plan you choose will affect your costs. In general, preferred provider organizations (PPOs) tend to be more expensive than Health Maintenance Organizations (HMOs), because PPOs have fewer restrictions about which doctors you can visit.[2]

Deductible

Your deductible is how much you have to pay before your insurer will start covering medical services (beyond eligible preventive care services that are always covered). The lower your deductible, the higher your monthly premium.

Age

As you get older, your premium can increase. Under current law, health insurance premiums can be no more than three times higher for older individuals than they are for younger people.

Who’s covered

Your premium will be higher if your policy covers family members, not just one person.

Tobacco use

If you use tobacco products, insurers can charge up to 50% more for insurance.[3]

As of 2022, the average benchmark marketplace plan costs $438 per month. (The benchmark plan, which is the second-lowest-cost silver plan offered on the Health Insurance Marketplace, is used to calculate tax subsidies.)

The average premium for an employer-sponsored plan is $645 per month for single coverage, but employers typically pick up the majority of costs. The average worker contribution for that typical single plan is $108 a month.[4]

Other insurance costs

Your health insurance premium is only one of many costs of health care. You’re also responsible for:

Deductible

This is how much you have to pay for covered health care services before your insurance kicks in.

Copayments

You may have to pay this fixed fee for services, such as $20 per visit or $60 for a specialist appointment.

Coinsurance

Coinsurance is a percentage of services that you have to pay—20%, say—after reaching your deductible.

These expenses make up your out-of-pocket costs. With employer plans that are compliant with the Affordable Care Act and plans purchased through the Health Insurance Marketplace, your out-of-pocket costs are capped.

For example, for 2022, the out-of-pocket maximum for a marketplace plan is $8,700 for an individual and $17,400 for a family, not including your premiums and spending on services that are not covered or out-of-network. Once you reach that threshold, your insurer has to cover the entirety of your covered medical services until the plan year ends.[5]

Who Is responsible for paying health insurance premiums?

Depending on the type of coverage you have, you may get assistance with your premiums.

Employer-sponsored health insurance

According to the Kaiser Family Foundation, 59% of employers offer health benefits to at least some of their workers, and most workers with insurance have to pick up at least part of their premiums. In 2021, the average annual worker contribution was $1,299 for single coverage and $5,969 for a family plan.[6]

Tip: At a small firm, you’ll typically have to pay a bigger chunk of your premiums than you will if you work at a big company.[7]

Marketplace policies

If you don’t get insurance on the job—say you’re self-employed or an early retiree—you can purchase a policy through the Health Insurance Marketplace. With this option, you are responsible for paying the entire premium, but you may be eligible for subsidies that reduce the cost. There are two subsidies:

Advanced Premium Tax Credit

Depending on your income and the size of your household, you may qualify for a tax credit worth between $30 and $342 a month, which will reduce or even eliminate your monthly premiums.

In most years, the income limit for qualifying is 400% of the federal poverty level for your family size and state. For tax years 2021 and 2022, the credit was expanded. If you received unemployment for any week beginning in 2021, you can qualify for a credit.[8]

If you find that you used a larger tax credit than you were due based on your income, you have to pay back the excess when you file your tax return.

Cost-sharing reductions

Cost-sharing reductions are provisions of the Affordable Care Act that reduce out-of-pocket costs by offsetting the cost of your copays, coinsurance and deductible.[9]

Tip: You can use the Kaiser Family Foundation’s subsidy calculator to estimate how much financial help you might be entitled to.

Medicare

If you are a Medicare beneficiary, you typically don’t pay a monthly premium for Medicare Part A (hospital coverage). However, you do have to pay a premium for Medicare Part B (medical coverage). The standard Part B premium in 2022 is $170.10, but it goes up for higher-income Medicare enrollees. You may also have a premium for Medicare Part D, which covers prescription medications.

If you decide to enroll in a Medicare Advantage plan, premiums vary and are in addition to your Medicare Part B premium.[10]

Medicaid

Low-income individuals can qualify for no-cost or reduced-cost health insurance through Medicaid. Medicaid eligibility and costs can vary by state, and states can charge limited premiums for certain income levels.[11]

Choosing a health insurance policy

When researching your health insurance options, pay attention to policy premiums. You will likely have to pay at least a portion of this monthly cost of maintaining coverage if you have employer-sponsored coverage. If you purchase coverage through the Marketplace, you could be responsible for the entire premium. You can use a Marketplace Plan calculator to estimate how much a Marketplace policy would cost based on your location, family size and income.

Article Sources
  1. “Marketplace Average Benchmark Premium,” Kaiser Family Foundation, https://www.kff.org/health-reform/state-indicator/marketplace-average-benchmark-premiums/?currentTimeframe=0&selectedDistributions=2022&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.
  2. “What You Should Know About Provider Networks,” Healthcare.gov, https://marketplace.cms.gov/outreach-and-education/what-you-should-know-provider-networks.pdf.
  3. “How Insurance Companies Set Health Premiums,” Healthcare.gov, https://www.healthcare.gov/how-plans-set-your-premiums.
  4. “2021 Employer Health Benefits Survey,” Kaiser Family Foundation, https://www.kff.org/report-section/ehbs-2021-section-1-cost-of-health-insurance.
  5. “Out-of-Pocket Maximum,” Healthcare.gov, https://www.healthcare.gov/glossary/out-of-pocket-maximum-limit.
  6. “2021 Employer Health Benefits Survey, Section 2,” Kaiser Family Foundation, https://www.kff.org/report-section/ehbs-2021-section-2-health-benefits-offer-rates.
  7. “2021 Employer Health Benefits Survey, Section 6,” Kaiser Family Foundation, https://www.kff.org/report-section/ehbs-2021-section-6-worker-and-employer-contributions-for-premiums/#figure610.
  8. “The Premium Tax Credit: The Basics,” IRS, https://www.irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics.
  9. “Understanding Health Insurance Subsidies,” Anthem, https://www.anthem.com/individual-and-family/insurance-basics/health-insurance/subsidy.
  10. “Medicare Costs at a Glance,” U.S. Centers for Medicare and Medicaid Services, https://www.medicare.gov/your-medicare-costs/medicare-costs-at-a-glance.
  11. “Cost Sharing,” U.S. Centers for Medicare and Medicaid Services, https://www.medicaid.gov/medicaid/cost-sharing/index.html.

About the Author

Kat Tretina

Kat Tretina

Kat is dedicated to teaching people how to pay down debt, boost their incomes and reduce financial stress. Her work has been published by Reader's Digest, The Huffington Post, Forbes Advisor and more.

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